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(New throughout, adds analyst comments, Hillary Clinton drug proposals, background)
By Ransdell Pierson and Bill Berkrot
Sept 28 (Reuters) - Democratic lawmakers on Monday attacked "massive" price increases of two heart drugs from Canada's Valeant Pharmaceuticals International Inc, fueling a rout in drugmaker shares on worries of a government and insurer clampdown on U.S. drug prices.
All 18 Democratic members of the House Committee on Oversight and Government Reform urged their chairman to subpoena Valeant and force it to provide documents relating to price increases of 212 percent for Isuprel and 525 percent for Nitropress. Valeant boosted the prices immediately after buying the heart drugs in February.
Shares of Valeant tumbled 16.5 percent and other pharmaceutical company shares slid too. Investors have worried that the drug industry faces a moment of reckoning for steep price hikes for new and older medicines. Shares of many pharmaceutical companies have slumped since 2016 Democratic presidential hopeful Hillary Clinton last week proposed ways for the government to prevent "profiteering" by the industry.
The tumble in Valeant shares on Monday hit hedge funds run by activist investors Bill Ackman, John Paulson and Jeffrey Ubben.
Ackman's fund, Pershing Square Capital Management, owns nearly 5.76 percent of Valeant, which partnered with Ackman last year in a failed bid to acquire Botox-maker Allergan Plc .
The Nasdaq Biotech Index sank 6 percent, while the ARCA Pharmaceuticals Index of large drugmakers dropped 3.5 percent. AbbVie Inc, Eli Lilly & Co and Gilead Sciences Inc were among the hardest hit.
The Democratic House members also urged panel Chairman Jason Chaffetz, a Republican, to invite Valeant Chief Executive Michael Pearson to testify at a hearing next week. That would put him in the same hot seat as Martin Shkreli, chief executive officer of privately held Turing Pharmaceuticals, who had already been called to testify.
Tiny Turing has been widely criticized for a price hike of more than 5,000 percent for its Daraprim treatment for a dangerous parasitic infection.
Clinton on Monday called on Turing to roll back the $750 price to its original $13.50.
"It just makes people more nervous that you are going to see Michael Pearson sitting next to Martin Shkreli," said Evercore ISI analyst Umer Raffat.
Pearson has built Valeant into one of the world's largest drugmakers through a series of acquisitions. His business model has featured price hikes and deep cuts in research spending. Officials at Valeant could not be immediately reached for comment on the requests for a subpoena.
U.S. biotech stock valuations have been falling since they peaked in mid-July.
"The sector was overvalued and today we're seeing a big flush," said Len Yaffe, portfolio manager of the StockDoc Partners healthcare fund. He said the decline was exacerbated by trading in exchange traded funds (ETFs), which hold a basket of stocks and tend to track a particular stock index. "We're seeing the negative side of investing in ETFs."
Clinton last week unveiled a plan that includes a $250 monthly cap on out-of-pocket costs for prescription drugs; it would allow the Medicare plan for the elderly to negotiate drug pricing, and permit Americans to buy drugs more cheaply from other countries.
On Monday, she suggested in a Facebook posting that large drugmakers should help increase competition among generic drugs by investing in their production when there is only one manufacturer.
Industry experts are skeptical that Clinton, if elected, could overcome tremendous Republican opposition to such measures in Congress. But her high-profile focus on the issue is expected to embolden efforts by health insurers, doctors' groups and others to pressure drugmakers.
"(Stock) selling hasn't really stopped since Hillary Clinton made her comments last week on Monday," said Jeff Jonas, a portfolio manager with Gabelli funds. "The Democratic committee members would certainly continue that trend that Hillary started."
Reporting by Ransdell Pierson and Bill Berkrot. Additional reporting by Amanda Becker in Washington.; Editing by Lisa Von Ahn, Bernadette Baum and David Gregorio